book
Review by J. Adam C obb
The Vanishing American Corporation
by Gerald Davis
S
ince the turn of the 20th century, the corporation has become a central institution
whose imprint extends broadly through society. From the food we eat and the clothes we
wear to the cars we drive and the smartphones we
can’t seem to live without—corporations permeate
our lives.
At the same time, the corporation as we came
to know it has changed in fundamental ways. The Gerald Davis
sprawling, vertically integrated industrial firms like
General Motors, which dominated the U.S. economy during
most of the 20th century and provided stable employment, pay,
and benefits for millions of workers, are seemingly going the
way of tail-finned cars and soda jerks. In their place are the likes
of Uber and many giant retailers who provide tenuous employment, unpredictable pay, and meager (if any) benefits.
How did this all unfold? How did the corporate society that
characterized most of the 20th century come to be? What factors led to the changes we see today? How have those changes
affected society? And what does the future hold in this brave
new world? These are the questions that University of Michigan
management and sociology professor Gerald Davis set out to
answer in The Vanishing American Corporation.
Throughout the book
Davis deftly, and at times
humorously, summarizes
years of scholarly research,
inserting lively quotes and
anecdotes to emphasize his main arguments. He
begins by carefully defining what a corporation is
and is not. While in common parlance “corporation” is often used as a synonym for “business,”
Davis reminds us that a corporation is a specific
kind of organization with a defined set of attributes. His focus throughout the book is the public
corporation—that is, one whose equity sells freely
on a stock exchange.
His main thesis is that the public corporation
was designed to solve a set of problems unique to a given time
and place. Given the dramatic changes to the U.S. economy
and how work is organized in it, the public corporation is illequipped to be the dominant business form going forward.
Davis provides a thorough summary of how the public corporation came to dominate the U.S. economy. In the early decades
of the 20th century, the types of corporations that proliferated
required significant capital to achieve the economies of scale necessary to maximize profits. Interventions from the government
and organized labor, however, helped shape the contours of the
corporation, influencing the scope of activities for which it was
held responsible. Rather than just a mechanism for profit generation, the corporation also became a social institution.
During this period, the primary strategic imperative for the
corporation was growth. The largest corporations became massive enterprises, employing millions of workers and comprised
of a portfolio of often-unrelated businesses. By the 1970s, this
strategy became untenable, as flagging financial performance
The Vanishing American Corporation: Navigating the Hazards of a New Economy, by Gerald Davis.
Berrett-Kohler Publishers, 2016.
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PERSPECTIVES ON WORK / 2015
undermined the efficacy of the conglomerate form. By the
1980s, legal changes ushered in by the Reagan administration,
along with a changing ideological landscape, provided both the
means and the rationale necessary to break these corporations
into their component parts.
In concert with these legal changes, the U.S. economy’s center of gravity swung to Wall Street. Davis explains how shifts
in company-sponsored retirement plans to the now ubiquitous
401(k) led to an increasing number of Americans indirectly
owning stock through mutual funds. With billions of dollars at
their disposal, institutional investors could effectively pressure
firms to engage in tactics designed to maximize profits.
In response, corporations began to focus on a narrower set of
core activities, while outsourcing and contracting out everything
else. Davis refers to this as “Nike-fication,” after the business
model employed to great effect by Nike. Our televisions, computers, phones, clothes, pet food, and, in fact, most of the products
we use every day, are not made by the corporations whose name
appears on the label. They are made by a series of contractors
around the world (often in deplorable working conditions).
Interestingly, Davis contends that the seeds of the corDavis suggests that the
poration’s decline were planted
by Wall Street. The primary
demise of the corporate
benefit of going public is the
form leaves behind it a
firm is able to raise large sums
set of building blocks
of capital to fund operations.
In a world where economies of
from which a more
scale meant bigger is better, goequitable and sustainable
ing public makes sense. However, the shareholder value
economy might emerge.
movement meant that smaller
was now better, and as such, the main rationale for most business to go public has disappeared. Because going public entails
significant costs—financial reporting and appeasing investors
and analysts, to name a few—the main reason now for firms to
go public is to reward founders, employees, and early investors.
Davis rightfully points out, however, that these are not compelling reasons for later investors to buy shares on the open
market, especially when founders maintain majority control
through dual share classes—an increasingly popular tactic in
Silicon Valley. Meanwhile, in an effort to avoid Wall Street
scrutiny, many public corporations have gone private, while
others have foregone going public altogether. Maybe it is not so
surprising, then, that the number of publicly traded companies
in the United States declined by half between 1997 and 2012.
Davis then shifts his attention to the consequences of the
corporation’s demise. The United States has a unique form of
welfare where employers, as opposed to the government, became the primary supplier of health care and retirement benefits.
As fewer workers are now employed by the corporations offering
these benefits, and as many firms have shifted health and retirement costs onto their workforces, there are now significant holes
in the social safety net (that the government is at least beginning
to fill).
Additionally, Davis argues that corporations played an
important role in lowering income inequality and providing
avenues for worker mobility. Corporations may be the paragon
of inequality, replete with their pyramid-shaped bureaucracies.
However, large corporations, in an effort to maintain some
sense of equity, compress wages by paying lower-skilled workers a premium over what they might earn on the open market.
Moreover, within a firm’s boundaries, a worker had some hope
of moving up through the ranks to higher-paying jobs. Absent
these large bureaucracies to provide structure for worker careers, the pathway to mobility has narrowed and become much
more difficult to navigate.
In a more hopeful spirit, Davis suggests that the demise of
the corporate form leaves behind it a set of building blocks
from which a more equitable and sustainable economy might
emerge. Without (as many) public corporations, the power of
Wall Street will be curtailed, and along with it, the pathologies
that a finance-driven economy spawns.
Moreover, the gap left by corporations can be filled by a
diverse set of forms. These new forms may be more local and
democratic in orientation, making them more sustainable and
equal. However, Davis also suggests a starker alternative—an
Uber-ized society full of “micro-entrepreneurs” where no one
is an employee and thus not subject to the rights and benefits
formal employment provides.
Davis concludes with advice for how workers can best
navigate the post-corporate society. He reminds us that eras of
massive technological advancement create massive social dislocation. In the short term, it is nearly impossible to predict today
what jobs will be important five years from now. So he suggests
developing a broad set of skills around technological fluency
and a mindset about how to think about important problems
and their possible solutions. The main problem Davis has in
mind is a fundamental one: If the world is changing in ways that
cause social dislocation, how can we soften the blow?
J. Adam Cobb
J. Adam Cobb is an assistant professor of management at
The Wharton School, University of Pennsylvania. He received
his PhD in management from the Ross School of Business,
University of Michigan. His research examines the historical
development and reconfiguration of employment relations and
their implications.
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